9911796707
TMI Blog2024 (12) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... y or reducing the amount of admissible input tax credit shall be made, unless the appellant has been given an opportunity of being heard. 2. Under Section 103 (1) of the Act, this Advance ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only- (a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of Section 97 for advance ruling; (b) on the concerned officer or the jurisdictional officer in respect of the applicant. 3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the said advance ruling have changed. 4. Under Section 104 (1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made. At the outset, we would like to make it clear that the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR vide Ruling No. 17/ARA/2024 dated 25.07.2024 ruled as follows:- (i) Yes. The activity of the transfer of title of goods stored in FTWZ Unit by the applicant to its customers in Domestic Tariff Area (DTA) or multiple transfer within the FTWZ, will get covered under para 8 (a) of Schedule-III of the CGST/TNGST Acts, 2017. (ii) This query is not answerable, since the query at Sl. No. (i) is answered in the affirmative. (iii) In terms of the amended Section 17 (3) of the CGST Act, 2017, and the rules made thereunder, the applicant becomes liable to reverse the proportionate ITC on common inputs/capital goods/services availed, if any. 3.3 Aggrieved over the said ruling pronounced by the AAR, the Appellant has filed the instant appeal. Under the grounds of appeal as submitted by the Appellant, they have put forth the following points in support of their defence, viz., A. 1 The AAR has erred in holding that the transfer of title of goods stored in FTWZ Unit by the Applicant to its customers in Domestic Tariff Area (DTA) or multiple transfers within the FTWZ followed by a subsequent removal from FTWZ Unit are covered under para 8 (a) of Schedule III of the CGST Act. A.2 The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had failed to consider the appellant's submission in its entirety. A.9 Accordingly, the appellant reiterated the detailed submissions made before the AAR and concluded that in view of the foregoing, it is evident that the AAR has misinterpreted the provisions in concluding that the supply of goods stored in the FTWZ falls under para 8 (a) of Schedule III, and therefore the impugned ruling should be set aside. B.1 The AAR has erred in not addressing the Query No. 2, on the basis that they have answered Query No. 1 in the affirmative, and therefore there is no need to respond to Query No. 2, as it starts with the phrase "If the answer to the above at (i) is no, ....". B.2 Though the AAR did not directly answer Query No. 2, they are indirectly concurring with the point that IGST would not be applicable to supplies within the FTWZ. B.3 While the inapplicability of GST on such supplies is undisputed, the disputed conclusion is with respect to the exclusions under paragraph 8 (a) of Schedule III which is incorrect, and as the same is covered under paragraph 8 (b) ibid. B.4 In para 19 of the impugned ruling, the finding of the AAR that 8 (b) of the Schedule III covers activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide. 3.4 Accordingly, in respect of the queries raised by them, the appellant were of the viewpoint that, (1) FTWZ does not qualify as a customs warehouse under the provisions of the Customs Act. Thus the transactions are not covered under para 8 (a) of Schedule III. (2) FTWZ is not a customs warehouse, and thus, it does not fall under Para 8 (a) of Schedule III. However, given that supplies undertaken prior to the goods crossing the customs frontiers of India are not taxable as also observed in the impugned ruling, the said transaction is covered under Para 8 (b) of Schedule III, which addresses the supply of goods by way of transfer of title before home consumption. (2) The restriction on the availment of ITC under Section 17 (3) of the CGST Act concerning supplies covered under Påra 8 of Schedule III applies only to DFS in terms of Explanation 3 to Rule 43 of CGST Rules. Since the instant transaction is not a DFS supply, there is no requirement for reversal of ITC. PERSONAL HEARING 4.1 Shri Pankaj Aggarwal, AGM - Taxation alongwith Shri K. Sivarajan, Partner, PW & Co., LLP, Mandaveli and Shri Ankit Dawar, Partner, PW & Co., LLP, Gurgaon, the authorized representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the first query was answered in the affirmative. The AR explained in detail about the legalities involved in the instant issue, and requested for a ruling on the same. 4.5 As regards the third query in relation to ITC availment in respect of such transactions, the AR contended that the AAR has considered only the amendment to Section 17 (3) of the CGST Act. Whereas, they have failed to take note of the parallel amendment in the CGST Rules, i.e., 'Explanation 3' to Rule 43 of the CGST Rules, 2017, wherein it has been made clear that the value of activities or transactions mentioned in sub-paragraph (a) of paragraph 8 of Schedule III of the Act, shall be the value of supply of goods from Duty Free Shops (DFS) at arrival terminal in international airports to the incoming passengers. The AR therefore reiterated that as far as paragraph 8 (a) of Schedule III of the Act is concerned, proportionate reversal of ITC is warranted only in respect of the transactions involving DFS and not in general. 4.6 The Members then requested the AR to furnish sample copies of the documents in relation to the issues discussed above, viz., the document for receipt of goods into FTWZ, the document for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veli, the authorized representative (AR) of M/s. Panasonic Life Solutions India (P) Ltd., appeared for the Personal Hearing. The AR briefly summarized the submissions made by them already during the personal hearing held on 03.10.2024. The AR further stated that as undertaken, the sample copies of the documents sought for by the Members during the hearing on 03.10.2024, have been furnished under the appellant's letter dated 15.10.2024. 4.9 The AR reiterated that SEZ is a port area and to this effect, the AR furnished a screen-print of the DGFT portal, wherein on being prompted with the Port code INCJJ6', the Port name is shown as 'J.Matadee Free Trade Zone SEZ Mannur Tamilnadu, and the Location type is shown is 'SEZ'. The AR therefore stated that the goods stored therein cannot be considered as 'warehoused goods' in the strict sense of the term, as SEZ warehouses are not included under the Customs Act. 4.10 Further, the AR furnished a copy of the FAQ on SEZ Filing (Part-I) by ICEGATE, and he invited the attention of the Members to Query No.9, i.e., What are the types of BE available for SEZ in ICEGATE 2.0 ?'. The AR explained that the reply to the said query states that "Z" type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the transfer of title of goods stored in FTWZ by the appellant to its customers in DTA or multiple transfers within the FTWZ, before the goods are actually cleared into DTA for home consumption, gets covered under paragraph 8 (a) or under paragraph 8 (b) of Schedule III of the CGST Act, 2017. For facilitation, the relevant provisions are reproduced as under :- 8(a) Supply of warehoused goods to any person before clearance for home consumption; 8(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption."; 5.3 We note from the above that the appellant's contentions revolves basically around the concept that the expression 'warehoused goods' used in paragraph 8 (a) of Schedule III of the CGST Act, 2017, carry the meaning as assigned to it in the Customs Act, 1962, whereby only a public warehouse licensed under section 57, or a private warehouse licensed under section 58, or a special warehouse licensed under section 58A, are covered, and not the FTWZ warehouse referred by the appellant in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text of the instant case. 5.6 In this regard, it is seen from the 'Principles of Insurance and Banking' authored by Dr. S.S. Kundu, the term 'Endorsement' and its properties has been discussed as below:- "1.9 ENDORSEMENT The word 'endorsement' in its literal sense means, writing on the back of an instrument. But under the Negotiable Instruments Act it means, the writing of one's name on the back of the instrument or any paper attached to it with the intention of transferring the rights therein. Thus, endorsement is signing a negotiable instrument for the purpose of negotiation. The person who effects an endorsement is called an 'endorser', and the person to whom negotiable instrument is transferred by endorsement is called the 'endorsee'. Essentials of a valid endorsement The following are the essentials of a valid endorsement: 1. It must be on the instrument. The endorsement may be on the back or face of the instrument and if no space is left on the instrument, it may be made on a separate paper attached to it called allonage. It should usually be in ink. 2. It must be made by the maker or holder of the instrument. A stranger cannot endorse it. 3. It must be signed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... linked to 'High Sea Sale'. 5.9 Further, we find that the appellant have stated in para 14 of the 'Statement of facts', filed along with the application for appeal, as follows :- "Further, upon finalisation of customer, the Appellant would raise a tax invoice (without tax) on the Domestic Tariff Area ("DTA") customer in foreign currency. In case of supply to overseas entity, the Appellant issues an export invoice as export of goods without payment of tax under Letter of Undertaking ('LUT'). The said invoices also specify the fact that the goods are being supplied from FTWZ unit (vis. of KILPL) and mentions that it is 'On Account' of supply by the Appellant." In addition to the same, the appellant have stated in the 'Grounds of Appeal' as part of para B.5, as follows :- Given the facts of the case, we are of the view that para 8 (b) is squarely applicable in the instant case, as Panasonic India transfers the title of the goods to the customer while the goods are lying within the FTWZ unit, i.e., before final clearance for home consumption by the end customer. Such transfer should be treated as akin to transfer through endorsement before clearance as envisaged in the said para. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse" And, as per Section 2 (43) ibid, "(43) "warehouse" means a public warehouse licensed under section 57 or a private warehouse licensed under section 58 or a special warehouse licensed under section 58A." In this regard, we observe that as rightly pointed out by the taxpayer, the definition of 'warehouse' as in the Customs Act, 1962, gets restricted to the Customs bonded warehouses under Sections 57, 58 and 58A of the Act, ibid. 5.13 At this juncture, it becomes imperative to take note of the fact that while SEZ is considered as a duty free enclave in simple terms, FTWZ is one category of SEZ that specializes in warehousing and trading operations. The definitions of SEZ and FTWZ under the SEZ Act, 2005 are reproduced for facilitation, viz., "2(za) "Special Economic Zone" means each Special Economic Zone notified under the proviso to sub-section (4) of section 3 and sub-section (1) of section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone;" "2(n) "Free Trade and Warehousing Zone" means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on;" Further, Sections 3 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mestic Tariff Area; 5.15 In its most fundamental sense, a bonded warehouse is one of the types of warehouses sanctioned by customs authorities, specifically designed to house imported goods without the immediate burden of import duties or taxes. This allows business enterprises to store their goods without paying duties until they are ready to be released into the domestic market. On the other hand, in non-bonded facilities, duties on the items imported and kept, are already paid for. Accordingly, the bonded warehouses and unbonded warehouses differ significantly in terms of tax status. 5.16 However, it is to be noted here that warehouses as discussed within the legal framework of SEZ/FTWZ, are nothing but 'bonded warehouses', very much akin to 'customs bonded warehouses'. Further, we observe that there is no inconsistency between the provisions of the Customs Act, the SEZ Act and the SEZ Rules with respect to warehousing. As per rule 22 of the SEZ Rules, every SEZ is required to execute Bond-cum-Legal Undertaking ("BLUT") in Form 'H' of the SEZ Act with the Customs authorities to avail the benefit of duty-free clearance. It is to be noted here that though the Form 'H' is prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer logistics solutions tailored to international trade, each with their own advantages and benefits. While the customs warehouse stands out for its focus on secure warehousing and efficient inventory management, the warehouses in duty-free zones are notable for its commercial freedom and tax advantages. In effect, both the types of bonded warehouses offer financial respite to the business houses in the form of tax deferral. 5.18 It is to be noted here that while the terms 'warehouse' and 'warehoused goods' have been defined under Section 2 (43) and 2(44) of the Customs Act, 1962, the same have not been defined under the SEZ Act, 2005. However, Section 2 of the SEZ Act, 2005, that contains the definition of certain words/expressions under the said Act, also carries a provision under Section 2(zd) of the SEZ Act, which states that all other words and expressions used but not defined in this Act, shall have the meanings respectively assigned to them in those Acts, and it reads as under :- "(zd) all other words and expressions used and not defined in this Act but defined in the Central Excise Act, 1944 (1 of 1944), the Industries (Development and Regulation) Act, 1951 (65 of 1951), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar about the generation of eight digit Warehousing Code, whereby the first 4 characters indicates the EDI port of registration, the fifth character to denote the type of warehouse and the sixth, seventh and eighth characters are running numeric serial numbers. The User Manual on 'SEZ Web Forms' by ICEGATE 2.0 prescribes two types of Bill of Entry, viz., 1. Z type BOE:-SEZ BE (FTA-SEZ) and 2. T type BOE:-SEZ (DTA Sales - Trading). The Manual further prescribes that 'General and Warehouse details' pertaining to the import is required to be provided in Segment-1 of the said web form. This apart, the Directorate General of Systems and Data Management through para No. 2 of the Advisory No.32/2023 dated 23.12.2023, has stated as follows:- "In this regard, modifications have been made in the System, for mandatory declaration of warehouse code by the importer at the time of filing into-bond bill of entry. A check has also been placed in the System that at that time of clearance of warehouse bill of entry, the warehouse code mentioned should be active and valid." 5.21 On perusal of the documents towards import of the goods in question, furnished by the applicant vide their mail dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Customs Act. Further, when the goods are imported and brought into a FTWZ unit, they are basically warehoused first and then traded or subjected to other authorized operations as the case may be. We notice that the appellant's queries for advance ruling in the instant case is restricted to the first stage, i.e., when the imported goods are supplied to any person before they are cleared for home consumption, while they still remain warehoused. Accordingly, we are of the considered opinion that the provisions of 8 (a) of Schedule III of the CGST Act, 2017, viz., "Supply of warehoused goods to any person before clearance for home consumption" applies to the instant case, and we do not find any reason to modify the ruling pronounced by the AAR in relation to Query No. 1 of the Advance Ruling No. 17/ARA/2024 dated 25.07.2024. 5.24 As far as Query No. 2 of the appellant's application for advance ruling is concerned, we notice that the same reads as, "If answer of the above query is No, whether Integrated Goods and Services Tax (IGST') is payable by the Applicant on goods stored in FTWZ unit and supplied to its customers in DTA unit, in addition to the customs duty payable [i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted supplies. (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building." 5.28 Prior to the amendment to Section 17 of the CGST Act, 2017, carried out under the Finance Act, 2023 (8 of 2023), the explanation to sub-section (3) of Section 17, read as follows :- "Explanation. For the purposes of this sub-section, the expression "value of exempt supply" shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule;" Under Section 139 of the Finance Act, 2023 (8 of 2023), an amendment to Section 17 of the CGST Act, 2017 has been proposed as follows :- "In section 17 of the Central Goods and Services Tax Act,- (a) in sub-section (3), in the Explanation, for the words and figure "except those specified in paragraph 5 of the said Schedule", the following shall be substituted, namely:- "except,- (i) the value of activities or transactions specified in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at arrival terminal in international airports to the incoming passengers.". 5.30 Further, perusal of the excerpts of para 7.59 of the 'Minutes of the 47th Meeting GST Council held on 28th & 29th June, 2022', confirms the position that the intention behind these amendments, is to include certain transactions (supplies from 'Duty Free Shops', specifically) under paragraph 8 (a) of Schedule III of CGST Act in the value of exempt supply, for the purpose of reversal of appropriate ITC. For facilitation, the relevant portion of the same is reproduced as below :- "ii. For future, there is a need to exclude refund in respect of ITC on inputs/ input services pertaining to Duty Free Shops at Arrival Terminal by amending Explanation to sub-section (3) of section 17 of CGST Act by including certain transactions under paragraph 8 (a) of Schedule III of CGST Act in the value of exempt supply. The Law Committee recommended;- b. To amend sub-section (3) of Section 17 of CGST Act, 2017 by substituting the existing explanation with the explanation proposed in the Agenda. c. Post amendment in sub-section (3) of Section 17 of CGST Act, the supplies from Duty Free Shops at arrival terminal to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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